Trump Signals Support for Airlines; Industry Wants $58 Billion
U.S. Airline Industry Pleads for $58 Billion in Grants, Loans
(Bloomberg) --
President Donald Trump said the U.S. government would strongly back the nation’s airlines, hours after the industry said it needed $58 billion in aid as travel demand collapses because of the coronavirus.
“As far as the airlines are concerned, we are going to back the airlines 100%,” Trump told reporters Monday, while also cautioning Americans to avoid discretionary travel as well as restaurants and schools. “We’re going to help them very much.”
The sudden need for public assistance underscores the depth of the economic pain for airlines, which were riding high before the outbreak battered travel demand. The trade group representing large carriers, Airlines for America, released a memo on Monday outlining urgent needs and describing a dire financial situation.
“The current economic environment is simply not sustainable, and it is compounded by the fact that the crisis does not appear to have an end in sight,” said the group, which is asking for $50 billion for passenger airlines and $8 billion for cargo carriers.
The industry is also seeking a rebate of excise taxes paid by passengers to the federal government from Jan. 1 through March 31 and a temporary repeal of the tax, according to the group.
The swift drop in passengers, both from government imposed restrictions and people across the U.S. shying away from travel, has been worse than the aftermath of the Sept. 11, 2001, terrorist attacks, the trade group said.
In Europe, governments are considering aid packages that could total $20 billion to save carriers including Air France-KLM and Deutsche Lufthansa AG, estimates Jefferies analyst Sandy Morris. The mechanisms include tax breaks and loans that could be later converted into equity.
Airline aid is a key area under discussion, President Donald Trump’s economic adviser Larry Kudlow told reporters outside the West Wing. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have been holding talks on airline assistance, Kudlow said Monday.
“It’s not so much a bailout,” Kudlow said. “Airlines are a key channel in the economy. This is more in our view a liquidity help. Cash flow help. Because again we see this virus problem as a matter of months, not years. And we don’t see the airlines failing. But if they get into a cash crunch, we’re going to try to help them.”
Airports are requesting $10 billion in unspecified aid to help offset their own financial losses, said a person familiar with the industry’s request who wasn’t authorized to speak on the issue.
Following years of prosperity and rising stock prices for airlines, A4A on Monday used grim language to describe the current environment.
“This is an extremely fluid situation that is evolving rapidly. The rapid spread of Covid-19, along with the government and business-imposed restrictions on air travel, are having an unprecedented and debilitating impact on U.S. airlines,” the group said.
Related: Europe’s Airline Aid Risks Reversing Decades of Privatization
A Standard & Poor’s index of major U.S. carriers fell 7.6% at the close in New York, paced by United Airlines Holdings Inc.’s 15% tumble. By contrast, American Airlines Group Inc. surged 11%, extending gains after Trump’s remarks on government support. The airline index tumbled 42% this year, while the S&P 500 Index has dropped 26%.
Carriers are stepping up efforts to reduce spending, including drastically cutting flying, parking aircraft and reaching agreements with some unions for voluntary leaves of absence. Unions also are joining the airlines to lobby in Washington for the aid package carriers say is needed to keep them afloat.
“In the coming days, we will ask for your support to join in efforts to call on our lawmakers on Capitol Hill for assistance for our industry and our flight attendants,” Lori Bassani, president of the Association of Professional Flight Attendants, told members in a message.
“We have already reached out to other unions to form a joint multi-pronged effort, and you will hear more in the near future,” said Bassani, whose union represents workers at American Airlines.
Unions at United Airlines Holdings Inc. also will take part in a “call to action” for government assistance, the Air Line Pilots Association said in a message to aviators.
American will cut international flying 75% amid the collapse in demand and domestic flying by as much as 30%, while United Airlines Holdings Inc. will chop capacity 50% in April and May. Delta Air Lines Inc. will park as many as 300 planes as it pulls down capacity by 40%.
Rapid Deterioration
“In the short space of two weeks, U.S. airlines have seen their positions of strong financial health deteriorate remarkably rapidly,” A4A said in the memo. “The downturn in demand for commercial air transportation related to Covid-19 is causing unprecedented harm to the U.S. airline industry.”
Cancellations are outpacing new bookings and “trending worse each day,” A4A said, adding that the industry environment is “much worse” than after the 9/11 terrorist attacks.
Under a pessimistic set of assumptions, A4A said its seven passenger carriers would run out of money between June 30 and the end of the year. And that milestone could come even earlier than the end of June assuming that credit card companies begin withholding cash from sales, A4A said.
“As of the morning of March 16 the pessimistic scenario is looking most likely,” A4A said. The outlook would get even worse if the U.S. government orders a domestic travel ban.
Meanwhile, airports are estimating financial losses of at least $8.7 billion, the trade group Airports Council International - North America said in a statement.
“The swift drop in air travel has forced airports to get creative by cutting budgets and lowering their operating costs as quickly as possible, all while stepping up their efforts to clean facilities and ensure the health and safety of passengers and employees alike,” the group said.
--With assistance from Jennifer Jacobs and Saleha Mohsin.
To contact the reporters on this story: Alan Levin in Washington at alevin24@bloomberg.net;Mary Schlangenstein in Dallas at maryc.s@bloomberg.net
To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Brendan Case
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